Canadian debt at $2.4 trillion but consumer credit spending is slowing

Equifax Canada also reports an interesting trend in delinquencies

Canadian debt at $2.4 trillion but consumer credit spending is slowing
Steve Randall

The cost of living is catching up with Canadian households who are loading up on debt and facing greater financial stress.

A new report published today (Sept. 14) by Equifax Canada reveals that total consumer debt hit $2.4 trillion in the second quarter of 2023, including credit card balances reaching a new record high of $107.4 billion, but growth in consumer spending is slowing.

“Canadians are demonstrating a shift in their spending habits due to the current economic volatility,” explained Rebecca Oakes, vice-president of Advanced Analytics at Equifax Canada. “With various factors at play, individuals and households are actively adapting their financial strategies to navigate this dynamic landscape.”

Non-mortgage debt grew including a rise in subprime and deep subprime consumers, with the average non-mortgage debt per credit-active consumer showing a marginal uptick to $21,131, however the influx of new credit users (up 37% year-over-year) who typically have a low level of credit debt, subdues this average. Consumers with a credit history exceeding two years had an average non-mortgage debt of $22,710, up 1.9%.

Mortgage debt showed a modest one per cent increase from Q1 to Q2 2023. 

Reduced spending

The report shows that Canadians are shopping around for the best deals on credit products.

With the cost of borrowing rising and debt levels elevated, minimum monthly payments for credit card and unsecured line of credit increased 11.7% and 18.3% respectively, compared to last year.

Although spending on credit cards continues to grow, there was a sharp slowdown in the second quarter compared to a year earlier – 3.7% compared to 22.7%.

“The slowdown in credit card spend seems to be more prominent among mortgage holders and higher-income segments,” said Oakes. “They may have more flexibility to scale back on discretionary spending to meet their increased credit payment obligations.

Things are different for lower-income households though who may find cutting spending harder.

“The divide becomes apparent when we consider savings — those with higher savings can redirect funds to cover fixed expenses like mortgages and auto loans while tightening the reins on variable expenses like credit card spending. Meanwhile, consumers with depleting savings are facing an uphill battle, resulting in a continued uptick in credit card debt,” added Oakes.

What about delinquencies?

The challenges for consumers have raised concern about missed payments, but the stats show a surprising trend.

Despite a 19.8% year-over-year increase in 90+ days balance delinquencies for credit cards, they still stand 14.6% below Q2 2019 levels, indicating that missed payments are not escalating as swiftly as expected, although the rise in new credit card holders impacts this metric.

Auto loans show a different story though with delinquencies surpassing 2019 levels and financial products with variable interest rates, such as unsecured lines of credit and home equity lines of credit (HELOCs), are experiencing a faster rise in delinquencies year-over-year.

Rate hikes have also impacted mortgage holders with a rise in mortgage delinquencies, especially in provinces like Ontario and B.C. In these regions, delinquencies have spiked by 86.9% and 33.9% year-over-year, respectively.

“Factors such as substantial house price increases, larger loan amounts, a higher proportion of variable-rate mortgages, and the elevated cost of living have contributed to the delinquency rise,” said Oakes. “Additionally, payment shocks for newly renewed mortgages and upcoming renewals are poised to impact consumer finances, particularly for those facing mortgage terms that extend beyond their expected retirement age, leaving them with limited options for reducing monthly payment costs.”